The volatility of the forward swap rate is 22 per annum and


Suppose that the LIBOR yield curve is flat at 5.5% with continuous compounding. A swaption gives the holder the right to receive 5% in a 5-year swap starting in 3 years. Payments are made annually. The volatility of the forward swap rate is 22% per annum and the principal is $10 million. Use Black’s model to price the swaption.

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Financial Management: The volatility of the forward swap rate is 22 per annum and
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